This invention relates to automatically creating optimized econometric models, and more particularly, to automatically creating a set of optimum model parameters and model coefficients for an econometric model.
Business planning models are used to assist organizations in maximizing profits. For example, a forecasting model may be used to predict what quantity of a product will be sold at some time in the future. By predicting demand in this way, the organization can order sufficient materials to produce the quantity of product that will be sold.
Demand forecasts of this type are useful, but do not take account of supply and demand factors in an integrated fashion. For example, conventional demand forecasts do not take into account the different profit margins of products that can be assembled from the same parts.
As a result, econometric models such as price optimization models are being developed that allow organizations to better maximize profit or revenue or to optimally achieve other business goals. A price optimization model uses historical data to estimate the demand elasticity and temporal dynamics for various products. The price optimization model can then determine which products an organization should assemble from available parts and what prices should be charged for each of these products. A price optimization model of this type takes into account supply constraints while determining which prices will generate appropriate levels of demand to maximize overall profit or revenue or to satisfy other business goals.
The process of developing econometric models such as price optimization models can be difficult. Models are typically hand-crafted by economic consultants. If a company has numerous products for which models are required, the consultant must generally handle each modeling project separately. A consultant who is inexperienced may not select the most appropriate mathematical formulation for a model, leading to forecasting inaccuracies.
What is needed are tools to automatically generate optimum econometric models.